Goldman Sachs
Encyclopedia : G : GO : GOL : Goldman Sachs
The Goldman Sachs Group, Inc., or simply Goldman Sachs (NYSE: [GS]
Goldman is widely respected as a financial advisor to some of the most important companies, largest governments, and wealthiest families in the world. It is a primary dealer in the U.S. Treasury securities market. Goldman offers its clients mergers & acquisitions advisory, provides underwriting services, engages in proprietary trading, invests in private equity deals, and also manages the wealth of affluent individuals and families.
Quick facts
- As of 2005, employed 22,425 people worldwide.
- Total Net revenues for FY 2005 were $24.782 billion.
- Pre-tax earnings for the 2005 fiscal year ending November 30, 2005 were $8.273 billion.
- Second-year analysts have a 20% chance of getting into private equity.
- The CEO is Lloyd C. Blankfein.
Lines of Business
Goldman Sachs is divided into three core businesses (segments): Investment Banking, Trading and Principal Investments; and Asset Management and Securities Services.Investment Banking is divided into two divisions and includes Financial Advisory (mergers and acquisitions, investitures, corporate defense activities, restructurings and spin-offs) and Underwriting (public offerings and private placements of equity, equity-related and debt instruments). Goldman Sachs is one of the leading investment banks, topping the league tables many times, especially in equity operations. In mergers and acquisitions, it gained fame historically by advising clients on how to avoid hostile takeovers. Goldman Sachs, for a long time during the 1980s, was the only major investment bank with a strict policy against helping to initiate a hostile takeover, which increased Goldman's reputation immensely. This segment accounts for around 15 percent of Goldman Sach's revenues.
Trading and Principal Investments is the largest of the three core segments, and is the company's profit center. The segment is divided into three divisions and includes Fixed Income, Currency and Commodities (trading in interest rate and credit products, mortgage-backed securities and loans, currencies and commodities, structured and derivative products), Equities (trading in equities, equity-related products, equity derivatives, structured products and executing client trades in equities, options, and Futures contracts on world markets), and Principal Investments (merchant banking investments and funds). This segment consists of the revenues and profit gained from the Bank's trading activities, both on behalf of its clients (known as flow trading) and for its own account (known as proprietary trading).
Most trading done by Goldman is not speculative, but rather an attempt to profit from bid-ask spreads in the process of acting as a market maker. Around 65 percent of Goldman's revenues and profits are derived from this area. Upon its IPO, Goldman predicted that this segment would not grow as fast as its Investment Banking division and would be responsible for a shrinking proportion of earnings. The opposite has been true, however, and resulted in Lloyd Blankfein's appointment to President and Chief Operating Officer after John Thain's departure to run the NYSE and John L. Thornton's departure for an academic position in China.
Asset Management and Securities Services is a rapidly growing business for Goldman as it gains market share. It is divided into two divisions, and includes Asset Management which provides large institutions and very wealthy individuals with investment advisory, financial planning services, and the management of mutual funds, as well as the so-called alternative investments (hedge funds, funds of funds, real estate funds, and private equity funds). The Securities Services division provides Prime Brokerage, financing services, and securities lending to mutual funds, hedge funds, pension funds, foundations, and high-net-worth individuals. This segment accounts for around 19 percent of Goldman's earnings.
History
From its humble beginnings in 1869, when Marcus Goldman, a Jewish German immigrant, founded the firm, to its current status as one of the most respected financial institutions in the world, Goldman Sachs has undergone a fascinating journey. A brief history of Goldman follows:
1870s-1890s:
- Pioneered use of commercial paper for entrepreneurs.
- Samuel Sachs, Marcus Goldman's son-in-law, joins the firm as a partner.
- Joins NYSE as a member in 1896.
- Plays lead role in establishing IPO market.
- Popularizes use of P/E ratios and audited financials for evaluating industrial stocks.
- Samuel Sachs assumes role of Senior Partner in 1904.
- Co-lead manages the IPO of Sears, Roebuck in 1906.
- Becomes one of the first on Wall Street to actively recruit MBAs.
- Following the Wall Street Crash 1929, Goldman almost collapses due to the large trading risks it assumed in the late 1920's.
- Sidney Weinberg assumes role of Senior Partner in 1930, and shifts Goldman's focus away from taking on trading risk, and towards servicing corporate clients. In the process, he establishes relationships with some of America's largest companies.
- Takes a lead in proposing banking reform and corporate governance improvements.
- Founds Investment Research division in 1933.
- Creates municipal bond department in 1934.
- Becomes an early innovator in the field of risk arbitrage.
- Under the guidance of Gus Levy, Goldman becomes a leader in creating the technique of block trading, an innovative trading technique whereby large blocks of securities are bought and sold simultaneously. As a result of this innovation, Levy quickly becomes one of the leading revenue-generators at Goldman.
- Establishes its Investment Banking Division (IBD) in 1956.
- Becomes the first investment bank to focus on the institutional sales market, creating Institutional Sales division in 1956.
- Manages Ford Motor Company's IPO in 1956, at the time the largest public offering in history.
- Due to its reliance on the deal-making ability of Weinberg, Goldman seeks to diversify the sources of its investment banking revenue. In the process, it becomes the first investment bank to establish a business development group for its corporate advisory activities.
- Becomes the first investment bank to establish a dedicated M&A group in 1963.
- Gus Levy assumes role of Senior Partner in 1969, and builds Goldman's trading franchise. A trader by background, Levy is famous for coining the adage, "Something well bought is half sold", and the philosophy of being "long-term greedy".
- Consummates the first negotiated trade on NYSE.
- Is first to offer U.S. commercial paper for a Japanese company.
- Opens its first international office in London in 1970.
- Creates Private Wealth and Fixed Income divisions in 1972.
- Develops a "White Knight" strategy to defend Electric Storage Battery against a hostile bid from International Nickel in 1974. After successfully fending off the takeover attempt, Goldman publicly states its refusal to represent a hostile bidder due to the fact that this might create client conflicts. Subsequently, Goldman earns the trust of companies that are being pursued by financial or strategic buyers, and gains notoriety as a sell-side advisor.
- John Weinberg and John Whitehead assume roles of Co-Senior Partners in 1976, and codify Goldman's values in its Business Principles. Chief among these principles is that of teamwork, and Whitehead gains fame for oft repeating the phrase, "At Goldman Sachs we never say I."
- Becomes a leader in facilitating global privatization movement, by advising the companies that are being spun off from their parent governments.
- Facilitates one of first registered high-yield bonds for IPOs.
- Acquires J. Aron & Company, which has since served as Goldman's commodities arm.
- John Weinberg becomes sole Senior Partner in 1984.
- Joins London and Tokyo stock exchanges in 1986.
- Forms Goldman Sachs Asset Management in 1986.
- Becomes first U.S. bank to rank among top 10 in UK M&A league tables in 1986.
- Manages the IPO of Microsoft in 1986.
- Advises GE on its acquisition of RCA in 1986.
- Creates first public offering of original issue deep-discount bond.
- Becomes first investment bank to distribute research electronically.
- Robert Rubin and Stephen Friedman assume roles of Co-Senior Partners in 1990, where they focus on globalizing the firm and building its strength in M&A and Trading.
- Introduces paperless trading on NYSE.
- Publishes Black-Litterman Asset Allocation Model.
- Lead-manages first-ever global debt offering by a U.S. corporation.
- Launches Goldman Sachs Commodity Index (GSCI).
- Friedman becomes sole Senior Partner in 1992 after Rubin leaves to join President Clinton's Cabinet.
- Opens Beijing office in 1994.
- Jon Corzine becomes Senior Partner in 1994, where he focuses on reinforcing Goldman's focus on teamwork and community involvement.
- Manages the IPO of Yahoo! in 1996.
- Acts as global coordinator for the IPO of NTT DoCoMo in 1998.
- Becomes publicly traded via its IPO in 1999.
- Coordinates the landmark sale of LTCB (now Shinsei Bank) to Ripplewood Holdings.
- Bought Spear, Leeds & Kellogg, one of the largest specialists on NYSE. [link]
- Arranges first electronic offering for the World Bank.
- Advises landmark debt offering for Government of China.
- Acts as financial advisor for largest ever merger between biotech firms.
- Buys the Australian investment bank JBWere, with Australian operations now named Goldman Sachs JBWere Pty Ltd.
- Opens its first office in Bangalore, India in 2004.
- On Tuesday, May 30, 2006 CEO Henry M. Paulson left Goldman Sachs to join President Bush's cabinet as the Secretary of Treasury.
Alumni of Goldman Sachs
A number of alums of Goldman Sachs have gone on to hold prominent positions in both politics and in other for-profit and non-profit organizations. A sampling of alums includes:Politics / Public Service
- Bradley Abelow, Treasurer of New Jersey
- Joshua Bolten, current White House Chief of Staff
- Kenneth D. Brody, former President and Chairman of the Export-Import Bank of the United States
- E. Gerald Corrigan, former President and CEO of the Federal Reserve Bank of New York
- Jon Corzine, Governor of New Jersey and former US Senator from New Jersey.
- Paul Deighton, CEO of the London organizing committee for the Olympic Games
- Mario Draghi, Governor of the Bank of Italy
- Gary Gensler, Undersecretary of the Treasury (1999-2001) and Assistant Secretary of the Treasury (1997-1999)
- Henry Fowler, United States Secretary of the Treasury (1965-1969).
- Stephen Friedman, Chairman of the National Economic Council (2002-2005), Chairman of the President's Foreign Intelligence Advisory Board (2005 - ).
- Robert D. Hormats, Assistant Secretary of State (1981-1982), and Deputy U.S. Trade Representative (1979-1981)
- Reuben Jeffery III, Chairman of the Commodity Futures Trading Commission
- Philip D. Murphy, National Finance Chair of the Democratic National Committee
- Henry M. Paulson, current United States Secretary of Treasury
- Robert Rubin, Chairman of the National Economic Council (1993-1995), United States Secretary of the Treasury (1995-1999).
- Sidney J. Weinberg, Assistant to the chairman (1942-1943) and vice-chairman (1944-1945), War Production Board.
- John Whitehead, Deputy Secretary of State (1985-1989), Chairman of the Federal Reserve Bank of New York (1996-1999), Chairman of the Lower Manhattan Development Corporation (2001-2006).
- Robert Zoellick, United States Trade Representative (2001-2005), Deputy Secretary of State (2005-2006)
- Pete Briger, Co-Head of Fortress Investment Group, which bought $260m in loans belonging to Michael Jackson from Bank of America in late 2005.
- Leon Cooperman, Founder & CEO of Omega Advisors
- Jim Cramer, Founder of TheStreet.com and Smartmoney.com, best known as the host of Mad Money on CNBC.
- Gavyn Davies, Chairman Emeritus of the BBC
- J Christopher Flowers, Founder of J.C. Flowers & Company and member of the Forbes 400 list.
- Richard M. Hayden, Vice Chairman of GSC Partners, an $11 billion asset management firm
- Edward Lampert, Founder of ESL Investments and member of the Forbes 400 list.
- Eric Mindich, Founder of Eton Park, a prominent hedge fund.
- Ed Mule, Founder of multi-billion dollar hedge fund Silverpoint.
- Dinakar Singh, CEO of TPG-Axon Capital, a global hedge fund.
- [Stuart L. Sternberg], Owner of the Tampa Bay Devil Rays, a Major League Baseball team
- John Thain, CEO of the New York Stock Exchange
Working at Goldman Sachs
Goldman was listed as the 6th Best Large Company to Work For, and the 26th Best Overall Company to Work For in Fortune Magazine's 2006 rankings.
In addition, Goldman Sachs received a 100% rating on the Corporate Equality Index released by the Human Rights Campaign starting in 2004, the third year of the report. In addition, the company was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine.
References
- Goldman Sachs: The Culture of Success. Lisa Endlich. Little, Brown and Company. 1999. ISBN 0316643734
See also
- Goldman Sachs Global Leaders Program
External links
- [Goldman Sachs website]
- [Goldman Sachs Statement of business principles]
- [Goldman Sachs Execution and Clearing]
- [Spears, Leads & Kellogg Specialist LLC]
- [REDIPLUS]
Data
Litigation
- [The prosecution and settlement of the research scandal cases]
- [SEC Final Judgment] in SEC v. Goldman, Sachs & Co.
- *[Appendix A]
- *[Appendix B]
- [Goldman Sachs Investor Education]
- [Goldman Sachs Distribution Fund Plan Order]
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